ACC201 Principles of Financial Accounting
Instructor: David Miller
August 1, 2011
Stock Option and Ethics
In today’s corporate world stock options makes up and is increasingly dominates CEO pay packages. CEO’s and top level executives are paid in a variety of different ways and stock options are just one of the ways that they get paid. CEO’s and executives have skills and responsibilities that allow directors of companies to pay these executives an extremely high rate of pay. To sometimes find other ways than a monetary wage the directors will pay their executives in stock options or different benefits. In this essay I will look at the stock options and some of the ethical problems that these stock options cause.
Most CEO’s are paid through a “base pay, annual bonuses, long-term incentives, restricted stock awards, and stock options.” (Salary.com, 2011) As a general rule “the base salary accounts for about 20 percent and the other 80 percent is performance-based pay.” (Salary.com) Base pay is usually based upon the core basics and responsibilities of running the company on a day to day basis. Then you have the annual bonuses which are distributed because the executive has met annual performance expectations that were set at the on-set of employment or upon the previous year’s review. Long-term incentive payments are given for performance objectives that have been met over usually a two – to five – year period. Restricted stock awards are given so that the CEO and executives interests are aligned with the share holders; this is because restricted stock awards have an actual cash value. Stock options are used because they are very favorable for the accounting of the company.
Stock options are tied directly to the performance of the executive and the company when the executive is making good and sound decisions then the company will profit from this and so too will the executive. Executives are...